2 Jun 2016

Holiday pay errors could top $2b

5:16 pm on 2 June 2016

The potential extent of payroll underpayments has been made public - with the Ministry of Business, Innovation Employment (MBIE) estimating the total cost around the country could top $2 billion, and affect more than 700,000 employees.

New Zealand money.

New Zealand money. Photo: RNZ / Alexander Robertson

The errors were revealed after the problem with Holidays Act compliance were identified in some government agencies, with the government subsequently acknowledging the problem could be much more widespread.

However, the government had not disclosed any specific numbers about exactly how many people, or how much money across the country was involved.

Documents released to RNZ under the Official Information Act showed that when the problem first came to their attention in 2014, officials estimated, on average, employees had been underpaid between $250 and $500 per year.

They also said the ministry was "concerned that a significant proportion of New Zealand's workforce" may have been underpaid, citing estimates of between 194,700 and 763,350 employees likely to be owed wage arrears due to leave pay miscalculations.

Officials believed the annual cost, nationwide, could be between $50 million and $382 million each year; if the total cost was taken back six years (the statutory limit for liability) it could range between $292 million and $2.2 billion.

The documents stated "public sector non-compliance is likely to be similar to the private sector".

In March 2015, MBIE released a document outlining possible responses, including increased penalties for serious breaches arising from the employment standards review and the establishment of a separate dispute resolution scheme.

Another option was giving employers time to identify arrears, giving them a grace period to remedy those arrears, followed by a warning of stronger action in the future.

Revenue Minister Michael Woodhouse is downplaying the significance of MBIEs estimates, saying it is just speculation.

"And frankly it wasn't very helpful... anything that wide was clearly not quantifiable at that time and probably shouldn't have been supplied".

But he acknowledged they were large numbers.

"Yeah they are, even if it was at a couple of hundred million, but as I say we are still in the process of exploring what the scope of the issue is."

Michael Woodhouse during caucus run 1.03.16

Revenue Minister Michael Woodhouse Photo: RNZ / Alexander Robertson

Mr Woodhouse said the estimates were based on specific complaints by the Labour Inspectorate, when 19 out of 20 of those complaints were upheld.

"Because there was obviously a problem identified by either the employee or their union and that was referred to the Labour Inspectorate, clearly they would have been more likely than not to be upheld.

"But extrapolating that across the economy and saying that that's the scale of the problem was premature and unhelpful."

Mr Woodhouse said the government would continue to work with employers to make sure they understand and can apply the Holiday's Act provisions correctly.

He said stricter penalties for this type of breach had been introduced, but past that he did not intend to make any further legislative changes.

Mr Woodhouse said employees and their unions could find out from their employers if they had been underpaid, and seek to have the arrears paid.

He said the government was unlikely to have a more precise idea of the scale of the problem until later this year.

Caucus run 21/07/15

Photo: RNZ / Alexander Robertson

Pay estimates 'embarrassing' for government - Labour

Labour Party's economic development spokesperson David Clark said the estimates were extremely embarrassing for the government.

He said the error could affect up to one in three New Zealand workers.

"They may have been underpaid hundreds of dollars for the last six years."

Mr Clark said the government would try to blame employers, but ultimately it must take responsibility because it was in charge of guiding business and enforcing the law.

"Before the government attributes blame they should take a look at themselves, because MBIE - the ministry in charge of enforcing the law - has itself underpaid its employees."

He said the government should come up with a proper solution to pay those New Zealanders that had been short-changed.

"Now the full extent is clear, Steven Joyce needs to put his so-called Mr Fixit hat on and deal with this. We need a clear plan to get that money back into the pockets of those who earned it."

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